I turned 65 in 2006, what do I need to watch for when preparing my tax return?

1.  Make sure you calculate your taxable Social Security properly. Double-check your taxable social security worksheet if you are filing a paper form.

2.  The standard deduction amount is different is you and/or your spouse are age 65 or older and/or blind. If you are completing a paper form, make sure you are using the proper chart to determine your standard deduction.

3.   Make sure you report all sources of income, especially interest income.

4.   Review your prior year tax return to assist you in completing your current tax return.

5.   If you choose to use a paid preparer, take them a copy of your prior year tax return.

If you received the lump-sum distribution from a qualified retirement plan or a qualified retirement annuity and you were born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. These optional methods can be elected only once after 1986 for any eligible plan participant. You can elect to treat the portion of the payment attributable to your active participation in the plan before 1974 as long-term capital gain taxed at a 20% rate. You can also elect to figure the tax on the rest of the distribution using the 10-year tax option.

You may defer tax on all or part of your lump-sum distribution by requesting that your employer directly roll over the taxable portion into an IRA or to an eligible retirement plan. You can also defer tax on a distribution paid to you by rolling over the taxable amount to an IRA within 60 days after receipt of the distribution. A rollover, however, eliminates the possibility of any future special tax treatment of the distribution. Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump-sum from employer retirement plans regardless of whether you plan to roll over the taxable amount within 60 days.

If you receive benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partially taxable in the year you receive them. Your pension or annuity payments are usually fully taxable if your employer contributed all of the cost without including the cost in your taxable wages, or if you got back all your previously taxed contributions tax-free in previous years. If you contributed after-tax dollars to your pension or annuity, your pension payments are partially taxable. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid. This amount is your cost in the plan or investment, and includes the amounts your employer contributed that were taxable to you when contributed. If the starting date of your pension or annuity payments is after November 18, 1996, you must use the Simplified Method to determine how much of your annuity payments are taxable and how much are tax-free. The Simplified Method instructions and worksheets can be found on Form 1040 and 1040A.

If the only income you received during the tax year was your social security benefits, your benefits are not taxable and you will not have to file a tax return. If you received other income, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. You can use the same form as the Simplified Method to determine if your benefits are taxable. You should receive your Form SSA-1099 or Form RRB-1099 by early February of the current tax year. The form will show benefits paid and the amount of any benefits you repaid.

For additional tax information or inquiries, please visit, www.irs.gov